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FRA will stick to procedure in raising money for maize - Chilala

FRA will stick to procedure in raising money for maize - Chilala
By Florence Bupe and Fridah Zinyama
Wednesday August 29, 2007 [04:00]

FOOD Reserve Agency (FRA) chairperson Costain Chilala has said that FRA will stick to the stipulated procedure in securing the K200 billion required for this year's maize marketing season. And Cavendish University-Zambia finance management lecturer Gilbert Nsama has said the government's decision to directly borrow from one bank would affect the interest rates that are likely to be paid to the single bank.

Chilala said while the FRA board appreciated efforts by President Mwanawasa to organise funds required to purchase the remaining stocks of maize, it was imperative for the agency to maintain the existing financial regulations.

He was reacting to concerns raised by some stakeholders over President Levy Mwanawasa's directive to agriculture and co-operatives minister Ben Kapita to ensure that FRA moved quickly to secure the loan from an unnamed commercial bank following a discussion with its chairman.

"We will borrow money as FRA based on the facilities that are available and most beneficial to the agency. We will obtain the money as a commercial loan using our own collateral," Chilala explained.

Chilala disclosed that FRA was liaising with both Zambia National Commercial Bank (ZNCB) and Finance Bank over the possibility of getting the required amount, and added that FRA would decide on which bank to borrow from, based on the terms of the transaction.

"Despite what the President said, it is us as FRA getting the loan. The President may have approached the bank's chairman, who ordinarily may have agreed to make the money available to FRA, but at the end of the day we will decide who to get the money from based on our own analysis of the facilities and terms on offer," he said.
Last Saturday, President Mwanawasa told hundreds of people who had gathered to welcome him at Chipata Airstrip that he had a meeting with the chairman of the unnamed commercial bank to try and secure K200 billion.

But Chilala said President Mwanawasa was merely informing the people on what he was doing to assist in the maize marketing exercise.

"The President may have made that statement in passing (that the Minister of Agriculture should ensure FRA signs for the loan he had arranged)," he said.
Chilala disclosed that Finance Bank provided K140 billion required for the 2006 maize purchasing exercise.

"For the last few years, we've had a lot of support from Finance Bank and Zanaco, and we are still relying on these two banks to continue offering their support," Chilala said.
He explained that it was not the duty of the Minister of Agriculture to sign for loans, but simply to sign a letter authorising FRA to go ahead and borrow the money from a bank with terms the agency deems beneficial.

And Nsama said government had other options it could have used to access funds apart from issuing government bonds and treasury bills.

"The other option that government had was to access a domestic loan from a bank it has an account with," he said. "However, the problem with this option is that government will not have a choice in what interest rates they will be offered since there was no tendering done to offer more competition with the interests."

Nsama said the tendering process would have taken longer looking at the issue at hand - that of purchasing maize from farmers.

"The tendering process is quite slow because government will have to find willing buyers of the bonds and the treasury bills," he said.

Nsama observed that banks currently had a lot of cash which they were seeking to dispose, and lending to government would have been what most of the banks were looking for.
Nsama said FRA should have sourced for funds to continue with the purchasing exercise as farmers had already been delayed.

"FRA should be able to manage the crop-marketing season without facing any financial shortfalls as they have been exporting maize to other countries in the region," Nsama said. "They should have used those funds to buy more maize from the farmers and if they faced a shortfall, they should have allowed the necessary ministry to access the loan on their behalf."

He said President Mwanawasa was not the right person to have asked for the loan on behalf of FRA but that the relevant ministry should have sourced for the funds.
Meanwhile, Bankers Association of Zambia (BAZ) chairperson Larry Kalala has defended President Mwanawasa's disclosure as a normal financial transaction.
He explained that it was in order for one bank to provide huge sums of money, which may be in collaboration with other financial institutions or done solely, based on the bank's ability.

"I admit that K200 billion is a lot of money, which normally cannot be raised by a single bank. However, I don't think there is anything fishy about the President's engagement of one bank, because that bank may either be acting as a lead arranger for the required money, or they may have caught wind of the transaction before and therefore, had adequate time to prepare the funds," he said.

Kalala said there was increased competition in the banking sector, leading to commercial banks raising their lending limits to accommodate larger transactions.
He also explained that it was not a regulatory requirement for organisations to invite tenders for finances, but that they had the option to approach individual banks.
However, Kalala acknowledged that BAZ did not have the full background to President Mwanawasa's decision to approach the unnamed commercial bank to facilitate a loan for FRA, and therefore, he could not give a comprehensive response on the controversy in question.

And Bank of Zambia head of public relations Penelope Mapoma said the central bank was not well placed to give their position on the matter.

"Regrettably, we are not better placed to provide competent response. We believe that the Ministry of Agriculture and Cooperatives and the Food Reserve Agency would be better placed to provide the response you are seeking," said Mapoma.

Labels: FRA, MAIZE

posted by MrK @ 3:19 AM